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Regulated Price Plan
Price Report
November 1, 2016
to
October 31, 2017
Ontario Energy Board
October 14, 2016
Executive Summary 2
ExecutiveSummaryThis report contains the electricity commodity prices under the Regulated Price Plan (RPP) for
the period November 1, 2016 through October 31, 2017. The prices were developed using the
methodology described in the Regulated Price Plan Manual (RPP Manual).
In accordance with the applicable regulation, the OEB must forecast the cost of supplying RPP
consumers and ensure that RPP prices reflect this cost. RPP prices are reviewed by the OEB
every six months to determine if they need to be adjusted. After detailed review of the expected
costs in the upcoming 12 month period, as well as assessing the variances between actual and
forecast costs since prices were last established, the OEB has determined that the prices set in
April 2016 continue to be effective in recovering the forecast costs attributable to customers on
the Regulated Price Plan. Accordingly, no adjustments are required at this time. The
determination to retain current prices supports the OEB’s objectives of providing fair, stable
and predictable commodity prices for consumers.
Regular seasonal adjustments to TOU periods and tier thresholds will still apply.
Forecasting Methodology
In broad terms, the methodology used to develop RPP prices has two essential steps:
1. Forecasting the total RPP supply cost for 12 months, and
2. Establishing prices to recover the forecast RPP supply cost from RPP consumers over
the 12‐month period.
The calculation of the total RPP electricity supply cost involves several separate forecasts,
including:
o the hourly market price of electricity;
o the electricity consumption pattern of RPP consumers;
o the electricity supplied by those assets of Ontario Power Generation (OPG) whose
price is regulated;
o the costs related to the contracts signed by non‐utility generators (NUGs) with the
former Ontario Hydro;
o the costs of the supply contracts, and conservation and demand management (CDM)
initiatives of the Independent Electricity System Operator1 (IESO); and
o the net variance account balance (as of October 31, 2016) carried by the IESO.
The market‐based price for electricity used by RPP consumers reflects both the hourly market
price of electricity and the electricity consumption pattern of RPP consumers. Residential
1 Contracts were formerly held by the Ontario Power Authority (OPA), which merged with the Independent
Electricity System Operator effective January 1, 2015.
Executive Summary 3
consumers, who represent most RPP consumption, use relatively more of their electricity
during times when total Ontario demand and prices are higher (than the overall Ontario
average) and relatively less when total Ontario demand and prices are lower (than the overall
Ontario average). This consumption pattern makes the average market price for RPP
consumers higher than the average market price for the entire Ontario electricity market.
Average RPP Supply Cost
The hourly market price forecast was developed by Navigant Consulting Ltd. (Navigant). The
forecast of the simple average market price for 12 months from November 1, 2016 is
$22.59/MWh (2.259 cents per kWh). After accounting for the consumption pattern of RPP
consumers, the average market price for electricity used by RPP consumers is forecast to be
$24.63/MWh (2.463 cents per kWh).
The combined effect of the other components of the RPP supply cost is expected to increase this
per kilowatt‐hour price. The collective impact of the other components is summarized by the
Global Adjustment. The Global Adjustment reflects the impact of the NUG contract costs,
which are above market prices at most times, the regulated prices for OPG’s prescribed nuclear
and hydroelectric generating facilities (the prescribed assets), which may be above or below
market prices, and any remaining cost of supply contracts held by the Independent Electricity
System Operator (IESO) which generators have not recovered through their market revenues.
The cost associated with Conservation and Demand Management (CDM) initiatives
implemented by the IESO is also included. The forecast net impact of the Global Adjustment is
to increase the average RPP supply cost by $84.50/MWh (8.450 cents per kWh).
Another factor to be taken into account is that actual prices and actual demand cannot be
predicted with absolute certainty; both price and demand are subject to random effects. Two
adjustments are made to account for this forecast variance. A small adjustment is made to the
RPP supply cost to account for the fact that these random effects are more likely to increase than
to decrease costs. This adjustment was determined to be $1.00/MWh (0.100 cents per kWh).
Without this adjustment, the RPP would be expected to end the year with a small debit
variance.
An additional adjustment factor is required to “clear” the expected balance in the IESO variance
account as of October 31, 2017. The current balance accumulated due to lower than previously
forecast RPP revenues and higher than previously forecast supply costs. The forecast
adjustment factor to clear the existing variance balance is a debit (increase in the RPP price) of
$2.26/MWh (0.226 cents per kWh).
The resulting average RPP supply cost (for the period starting November 1, 2016) is
$112.39/MWh. The average RPP price (RPA) is 11.24 cents per kWh, 0.1 cents higher than the
forecast for 12 months beginning May 2016. This is summarized in Table ES‐1.
Executive Summary 4
Table ES‐1: Average RPP Supply Cost Summary (for the 12 months from May 1, 2016)
Source: Navigant
Inevitably, there will be a difference between the actual and forecast cost of supplying electricity
to all RPP consumers. Differences can arise as a result of changes in demand due to weather,
variation in natural gas prices, changes in the supply mix, as well as other factors. The sum of
these differences is referred to as the unexpected variance and will be included in the RPP
supply cost for the next RPP period.
RPP consumers are not charged the average RPP supply cost. Rather, they pay prices under
price structures that are designed to make their consumption weighted average price equal to
the average supply cost. There are two RPP price structures, one for consumers with eligible
time‐of‐use (or “smart”) meters who pay time‐of‐use (TOU) prices, who make up the majority
of RPP consumers, and one for consumers with conventional meters (Tiered Pricing).
Regulated Price Plan (TOU Pricing)
Consumers with eligible time‐of‐use (or “smart”) meters that can determine when electricity is
consumed during the day will pay under a time‐of‐use price structure. The prices for this plan
are based on three time‐of‐use periods per weekday2. These periods are referred to as Off‐Peak
(with a price of RPEMOFF), Mid‐Peak (RPEMMID) and On‐Peak (RPEMON). The lowest (Off‐Peak)
price is below the RPA, while the other two are above it.
The OEB establishes its time of use prices with reference to the objectives enumerated in its RPP
manual. The OEB has a number of objectives in setting the RPP. These include setting prices to
recover the full cost of RPP supply on a forecast basis, as well as ensuring that prices are fair,
stable and predictable. The OEB has determined that the TOU prices will not change from the
previous period because they will continue to be effective in recovering forecast costs. The
review of forecast costs has shown the average RPP cost for the next 12 months to be within 1%
of the last 12‐month forecast, and that variances between the last forecast and actual costs have
been broadly in line with expectations. TOU prices generated by the current cost forecast are
similarly only slightly different from those set as of May 1, 2016.
The resulting time‐of‐use (TOU) prices for consumers with eligible time‐of‐use meters therefore
remain at:
2 Weekends and statutory holidays have one TOU period: Off‐peak.
RPP Supply Cost Summaryfor the period from November 1, 2016 through October 31, 2017
Forecast Wholesale Electricity Price $22.59Load-Weighted Price for RPP Consumers ($ / MWh) $24.63
Impact of the Global Adjustment ($ / MWh) + $84.50Adjustment to Address Bias Towards Unfavourable Variance ($ / MWh) + $1.00Adjustment to Clear Existing Variance ($ / MWh) + $2.26
Average Supply Cost for RPP Consumers ($ / MWh) = $112.39
Executive Summary 5
o RPEMOFF = 8.7 cents per kWh;
o RPEMMID = 13.2 cents per kWh; and,
o RPEMON = 18.0 cents per kWh.
These prices reflect the seasonal change in the TOU pricing periods which will take effect on
November 1, 2016 and May 1, 2017. TOU pricing periods are:
o Off‐peak period (priced at RPEMOFF):
Winter and summer weekdays: 7 p.m. to midnight and midnight to 7 a.m.
Winter and summer weekends and holidays:3 24 hours (all day)
o Mid‐peak period (priced at RPEMMID)
Winter weekdays (November 1 to April 30): 11 a.m. to 5 p.m.
Summer weekdays (May 1 to October 31): 7 a.m. to 11 a.m. and 5 p.m. to 7 p.m.
o On‐peak period (priced at RPEMON)
Winter weekdays: 7 a.m. to 11 a.m. and 5 p.m. to 7p.m.
Summer weekdays: 11 a.m. to 5 p.m.
Regulated Price Plan ‐ Tiered Pricing
RPP consumers that are not on TOU pricing pay prices in two tiers; one price (referred to as
RPCMT1) for monthly consumption up to a tier threshold and a higher price (referred to as
RPCMT2) for consumption over the threshold. The threshold for residential consumers changes
twice a year on a seasonal basis: to 600 kWh per month during the summer season (May 1 to
October 31) and to 1000 kWh per month during the winter season (November 1 to April 30).
The threshold for non‐residential RPP consumers remains constant at 750 kWh per month for
the entire year.
Tiered prices calculated from the forecast RPP average cost in this report are each 0.1 cents
higher than current prices paid by RPP customers. Since current prices will continue to be
effective in recovering forecast costs, taking expected variances into account, the OEB has
determined that tiered prices will also remain unchanged at this time. The tiered prices for
consumers with conventional meters therefore remain as follows:
o RPCMT1 = 10.3 cents per kWh, and
o RPCMT2 = 12.1 cents per kWh.
3 For the purpose of RPP time‐of‐use pricing, a “holiday” means the following days: New Year’s Day, Family Day,
Good Friday, Christmas Day, Boxing Day, Victoria Day, Canada Day, Labour Day, Thanksgiving Day, and the Civic
Holiday. When any holiday falls on a weekend (Saturday or Sunday), the next weekday following (that is not also a
holiday) is to be treated as the holiday for RPP time‐of‐use pricing purposes.
Executive Summary 6
Based on historical consumption, approximately 53% of RPP tiered consumption is forecast to
be at the lower tier price (RPCMT1) and 47% at the higher tier price (RPCMT2). Given these
proportions, the average price for conventional meter RPP consumption is forecast to be equal
to the RPA.
The average price a consumer on TOU prices will pay depends on the consumer’s load profile
(i.e., how much electricity is used at what time). As discussed above, RPP prices are set so that
a consumer with an average load profile will pay the same average price under either the tiered
or TOU prices, as shown in Table ES‐2.4
Table ES‐2: Price Paid by Average RPP Consumer under TOU and Tiered prices
Time‐of‐Use RPP Prices Off‐Peak Mid‐Peak On‐Peak Average Price
Price 8.7¢ 13.2¢ 18.0¢ 11.1¢
% of TOU Consumption 65% 17% 18%
Tiered RPP Prices Tier 1 Tier 2 Average Price
Price 10.3¢ 12.1¢ 11.1¢
% of Tiered Consumption 53% 47%
Major Factors Influencing RPP Prices
The forecast average supply cost for RPP consumers increases by $0.97/MWh, or 0.87%, in the
current forecast compared to the previous forecast. Two factors account for this change:
o Underlying cost factors ‐ the load weighted market price for RPP consumers plus the
Global Adjustment ‐ decrease the average supply cost by $0.32/MWh; and,
o The change in the variance account debit balance adds to the supply cost increase by
$1.29/MWh.
The net difference in the forecast average supply cost for RPP customers is sufficiently small
that RPP prices developed for the prior forecast period remain effective at recovering the
expected costs over the current forecast period.
4The percentages of total consumption by TOU period and Tiers in Table ES‐2 are based on several years of
consumption data for consumers provided by the IESO.
Table of Contents 7
TableofContentsEXECUTIVE SUMMARY ............................................................................................................................................................ 2
AVERAGE RPP SUPPLY COST ....................................................................................................................................................... 3
REGULATED PRICE PLAN (TOU PRICING) ................................................................................................................................... 4
REGULATED PRICE PLAN - TIERED PRICING ................................................................................................................................ 5
LIST OF FIGURES & TABLES ................................................................................................................................................... 7
1. INTRODUCTION ............................................................................................................................................................... 8
1.1 ASSOCIATED DOCUMENTS ............................................................................................................................................. 8
1.2 PROCESS FOR RPP PRICE DETERMINATIONS ................................................................................................................. 9
2. CALCULATING THE RPP SUPPLY COST ................................................................................................................. 10
2.1 DEFINING THE RPP SUPPLY COST ............................................................................................................................... 10
2.2 COMPUTATION OF THE RPP SUPPLY COST .................................................................................................................. 11
2.2.1 Forecast Cost of Supply Under Market Rules ........................................................................................................ 12 2.2.2 RPP Share of the Global Adjustment ..................................................................................................................... 13 2.2.3 Cost Adjustment Term for Prescribed Generators ................................................................................................. 13 2.2.4 Cost Adjustment Term for Non-Utility Generators (NUGs) and Other Generation under Contract with OEFC 14 2.2.5 Cost Adjustment Term for Certain Renewable Generation Under Contract with the IESO ................................. 14 2.2.6 Cost Adjustment Term for Other Contracts with the IESO ................................................................................... 15 2.2.7 Estimate of the Global Adjustment ......................................................................................................................... 17 2.2.8 Cost Adjustment Term for IESO Variance Account .............................................................................................. 18
2.3 CORRECTING FOR THE BIAS TOWARDS UNFAVORABLE VARIANCES ........................................................................... 18
2.4 TOTAL RPP SUPPLY COST ........................................................................................................................................... 19
3. CALCULATING THE RPP PRICE ................................................................................................................................. 21
3.1 SETTING THE TOU PRICES FOR CONSUMERS WITH ELIGIBLE TIME-OF-USE METERS .................................................. 21
3.2 SETTING THE TIERED PRICES ........................................................................................................................................ 23
4. EXPECTED VARIANCE .................................................................................................................................................. 24
ListofFigures&TablesList of Figures
Figure 1: Process Flow for Determining the RPP Price ............................................................................................................. 9 Figure 2: Components of the RPP Supply Cost........................................................................................................................ 17 Figure 3: Expected Monthly Variance Account Balance ($ million) ...................................................................................... 25
List of Tables
Table 1: Ontario Electricity Market Price Forecast ($ per MWh) ........................................................................................... 12 Table 2: Total Electricity Supply and Costs .............................................................................................................................. 20
Table 3: Average RPP Supply Cost Summary……. ................................................................................................................. 21
Table 4: Price Paid by Average RPP Consumer under Tiered and TOU RPP Prices .......................................................... 24
Introduct ion 8
1. IntroductionUnder amendments to the Ontario Energy Board Act, 1998 (the Act) contained in the Electricity
Restructuring Act, 2004, the Ontario Energy Board (OEB) was mandated to develop a regulated
price plan (RPP) for electricity prices to be charged to consumers that have been designated by
legislation and that have not opted to switch to a retailer or to be charged the hourly spot
market price. The first prices were implemented under the RPP effective on April 1, 2005, as set
out by the Ontario Government in regulation O. Reg. 95/05. This report covers the period from
November 1, 2016 to October 31, 2017. The RPP prices set out in this report are intended to be
in place for that same period.5 However, the OEB will review these RPP prices in six months to
determine whether they need to be adjusted.
The OEB has issued a Regulated Price Plan Manual (RPP Manual6) that explains how RPP
prices are set. The OEB relies on a forecast of wholesale electricity market prices, prepared by
Navigant as a basic input into the forecast of RPP supply costs as per the RPP Manual
methodology.
This Report describes how the OEB has used the RPP Manual’s processes and methodologies to
arrive at the RPP prices effective November 1, 2016.
This Report consists of four chapters as follows:
o Chapter 1. Introduction
o Chapter 2. Calculating the RPP Supply Cost
o Chapter 3. Calculating RPP Prices
o Chapter 4. Expected Variance
1.1 Associated Documents
Two documents are closely associated with this Report:
o The Regulated Price Plan Manual (RPP Manual) describes the methodology for setting
RPP prices; and,
o The Ontario Wholesale Electricity Market Price Forecast For the Period November 1, 2016
through April 30, 2018 (Market Price Forecast Report),7 prepared by Navigant, contains
the Ontario wholesale electricity market price forecast and explains the material
5 In accordance with the RPP Manual, price resetting is considered for implementation every six months. If there is a
price resetting following an OEB review, the OEB will determine how much of a price change will be needed to
recover the forecast RPP supply cost plus or minus the accumulated variance in the IESO variance account over the
next 12 months. In addition to the scheduled six month review, the RPP Manual allows for an automatic “trigger”
based adjustment if a significant unexpected variance arises..
6http://www.ontarioenergyboard.ca/OEB/_Documents/EB‐2004‐0205/RPP_Manual.pdf
7 The Market Price Forecast Report is posted on the OEB web site, along with the RPP Price Report, on the RPP web
page. http://www.ontarioenergyboard.ca/oeb/_Documents/EB‐2004‐
0205/Wholesale_Price_Forecast_Report_November2016.pdf
Introduct ion 9
assumptions which lie behind the hourly price forecast. Those assumptions are not
repeated in this Report.
1.2 Process for RPP Price Determinations
Figure 1 below illustrates the process for setting RPP prices. The RPP supply cost and the
accumulated variance account balance (carried by the Independent Electricity System Operator,
or the IESO) both contribute to the base RPP price, which is set to recover the full costs of
electricity supply. The diagram below illustrates the processes to be followed to set the RPP
price for both consumers with conventional meters and those with eligible time‐of‐use meters
(or “smart” meters).
Figure 1: Process Flow for Determining the RPP Price
Source: RPP Manual
This Report is organized according to this basic process.
• Market Priced Generation• OPG Regulated Assets• NUGs• Contracted Renewables• Other Contracted Generation• CDM Costs• IESO Interest Costs
RPP Supply Cost
Cost Variance
RPP Basic PriceDetermination
Analysis forTime‐of‐Use
Prices
Analysis for Tiers
RPP Price for Eligible
Time‐of‐Use Meters
RPP Price for Conventional
Meters
Calculat ing the RPP Supply Cost 10
2. CalculatingtheRPPSupplyCostThe RPP supply cost calculation formula is set out in Equation 1 below. To calculate the RPP
supply cost requires forecast data for the terms in Equation 1. Most of the terms depend on
more than one underlying data source or assumption. This chapter describes the data or
assumption source for each of the terms and explains how the data were used to calculate the
RPP supply cost. More detail on this methodology is in the RPP Manual.
It is important to remember that the elements of Equation 1 are forecasts. In some cases, the
calculation uses actual historical values, but in these cases the historical values constitute the
best available forecast.
2.1 Defining the RPP Supply Cost
Equation 1 below defines the RPP supply cost. This equation is further explained in the RPP
Manual.
Equation 1
CRPP = M + α [(A – B) + (C – D) + (E – F) + G] + H, where
o CRPP is the total RPP supply cost;
o M is the amount that the RPP supply would have cost under the Market Rules;
o α is the RPP proportion of the total Global Adjustment costs;8
o A is the amount paid to prescribed generators in respect of the output of their
prescribed generation facilities;9
o B is the amount those generators would have received under the Market Rules;
o C is the amount paid to the Ontario Electricity Finance Corporation (OEFC) with
respect to its payments under contracts with non‐utility generators (NUGs);
o D is the amount that would have been received under the Market Rules for electricity
and ancillary services supplied by those NUGs;
o E is the amount paid to the IESO with respect to its payments under certain contracts
with renewable generators;
8The elements in square brackets collectively represent the Global Adjustment. For RPP price setting purposes the
elements of the Global Adjustment are described differently in this Price Report than they are in O. Reg. 429/04
(Adjustments under Section 25.33 of the Act) made under the Electricity Act, 1998. “G” in the expression in square
brackets integrates two separate components of the Global Adjustment formula (G and H). “E” and “F” in the
expression in square brackets include certain generation contracts that are associated with “G” in O. Reg. 429/04. This
is necessary to ensure that there is no double‐counting and thus over‐recovery of generation costs because all RPP
supply is included in “M”. As discussed below, forecast Global Adjustment costs are recovered through the RPP
according to the allocation of the Global Adjustment between Class A and Class B consumers, and the RPP
consumers’ share of Class B consumption.
9As set out in regulation O. Reg. 53/05, The Board sets payment amounts for energy produced from Ontario Power
Generation’s nuclear and certain hydro‐electric generating stations (the prescribed assets). The Board’s most recent
Decision setting these payment amounts (EB‐2014‐0370) was issued on October 8, 2015.
Calculat ing the RPP Supply Cost 11
o F the amount that would have been received under the Market Rules for electricity
and ancillary services supplied by those renewable generators;
o G is (a) the amount paid by the IESO for its other procurement contracts for generation
or for demand response or CDM, and (b) the sum of any OEB‐approved amounts for
CDM programs that are payable by the IESO to distributors; and,
o H is the amount associated with the variance account held by the IESO. This includes
any existing variance account balance needed to be recovered (or disbursed) in
addition to any interest incurred (or earned).
The forecast per unit RPP supply cost will be the total RPP supply cost (CRPP) divided by the
total forecast RPP demand. RPP prices will be based on that forecast per unit cost.
2.2 Computation of the RPP Supply Cost
Broadly speaking, the steps involved in forecasting the RPP supply cost are:
1. Forecast wholesale market prices;
2. Forecast the load shape for RPP consumers;
3. Forecast the quantities in Equation 1; and
4. Forecast RPP Supply Cost = Total of Equation 1.
In addition to the four steps listed above, the calculation of the total RPP supply cost requires a
forecast of the stochastic adjustment, which is not included in Equation 1. The stochastic
adjustment is included in the RPP Manual as an additional cost factor calculated outside of
Equation 1. Since the RPP prices are always announced by the OEB in advance of the actual
price adjustment being implemented, it is also necessary to forecast the net variance account
balance at the end of the current RPP period (October 31, 2016).10This amount is included in
Equation 1 (“H”).
In May 2016, the Climate Change Mitigation and Low‐carbon Economy Act, 2016 received Royal
Assent and Ontario Regulation 144/16 was issued. Together, the legislation and regulation
provide details about the Cap and Trade Program, which begins January 1, 2017. Under the
legislation, large final emitters, natural gas distributors and electricity importers will be
required to verify and report their greenhouse gas emissions to the provincial government, and
will have to match their total emissions in each compliance period with an equivalent amount
of “allowances.”
Accordingly, this RPP forecast makes provision for the cap and trade program being in place for
ten of the twelve months in this forecast, starting in January. As more fully detailed in the
Wholesale Market Forecast report, the forecast of wholesale market prices reflects the
expectation for a carbon market aligned with prices in California and Quebec. Likewise, the
estimate of Global Adjustment in this report reflects the effects of higher market prices.
10 RPP prices are announced in advance by the OEB to provide notification to consumers of the upcoming price
change and to provide distributors with the necessary amount of time to incorporate the new RPP prices into their
billing systems.
Calculat ing the RPP Supply Cost 12
The following sections will describe each term or group of terms in Equation 1, the data used
for forecasting them, and the computational methodology to produce each component of the
RPP supply cost.
2.2.1 Forecast Cost of Supply Under Market Rules
This section covers the first term of Equation 1:
CRPP = M + α [(A – B) + (C – D) + (E – F) + G] +H.
The forecast cost of supply to RPP consumers under the Market Rules depends on two
forecasts:
o The forecast of the simple average hourly Ontario electricity price (HOEP) in the
IESO‐administered market over all hours in each month of the year; and
o The forecast of the ratio of the load‐weighted average market price paid by RPP
consumers in each month to the simple average HOEP in that month.
The forecast of HOEP is taken directly from the Market Price Forecast Report. That report also
contains a detailed explanation of the assumptions that underpin the forecast such as generator
fuel prices (e.g. natural gas). Table 1 below shows forecast seasonal on‐peak, off‐peak, and
average prices. The prices provided in Table 1 are simple averages over all of the hours in the
specified period (i.e., they are not load‐weighted). These on‐peak and off‐peak periods differ
from and should not be confused with the TOU periods associated with the RPP TOU prices
discussed later in this report.
Table 1: Ontario Electricity Market Price Forecast ($ per MWh)
Source: Navigant, Wholesale Electricity Market Price Forecast Report
Note: On‐peak hours include the hours ending at 8 a.m. through 11 p.m. Eastern Standard Time (EST) on
working weekdays and off‐peak hours include all other hours. The definition of “on‐peak” and “off‐peak”
hours for this purpose bears no relation to the “on‐peak”, “mid‐peak” and “off‐peak” periods used for
time‐of‐use pricing.
The forecasts of the monthly ratios of load‐weighted vs. simple average HOEP are based on
actual prices between April 2005 and September 2016. The on‐peak to off‐peak ratio is also
based on data through September 2016.
As shown in Table 1, the forecast simple average HOEP for the period November1, 2016 to
October 31, 2017 is $22.59/MWh (2.259 cents per kWh). The forecast of the load weighted
average price for RPP consumers (“M” in Equation 1) is $24.63/MWh (2.463 cents per kWh), or
$1.4 billion in total, the result of RPP consumers having load patterns that are more peak
oriented than the overall system.
Term Quarter Calendar Period On-Peak Off-Peak Average Term Average
Q1 Nov 16 - Jan 17 $32.20 $19.13 $25.09
Q2 Feb 17 - Apr 17 $32.04 $19.17 $25.08
Q3 May 17 - Jul 17 $27.40 $13.05 $19.67
Q4 Aug 17 - Oct 17 $28.23 $14.26 $20.61 $22.59RP
P Y
ear
Q1 Nov 17 - Jan 18 $32.26 $18.87 $24.97
Q2 Feb 18 - Apr 18 $25.58 $13.66 $19.14 $22.10Oth
er
Calculat ing the RPP Supply Cost 13
2.2.2 RPP Share of the Global Adjustment
Alpha (“α”) in Equation 1 represents the share of the Global Adjustment paid by (or credited to)
RPP consumers. Effective January 1, 2011, O. Reg. 429/04 (Adjustments under Section 25.33 of
the Act) made under the Electricity Act, 1998 was amended to revise how Global Adjustment
costs are allocated to two sets of consumers, Class A and Class B (includes RPP consumers)11 .
The first step to determine alpha is to estimate Class A’s share of the Global Adjustment. Based
on the formula and periods defined in O. Reg. 429/04, the Class A share has been decreased
to11.7% for the July 2016 to June 2017 period; and it is assumed for the purposes of this forecast
to remain at that level for the July 2017 to June 2018 period.12Class B’s share of the Global
Adjustment is therefore 88.3%.
The next step is to estimate RPP consumers’ share of Class B consumption. Based on historical
data on RPP consumption as a share of total Ontario consumption, it is forecast that RPP
consumption will represent about 59 TWh or 52.1% of total Class B consumption.13 The RPP
share varies from month to month, ranging between 50.5% and 54.2%. The value of α therefore
ranges between 0.446 and 0.478. Over the entire RPP period, RPP consumers are forecast to be
responsible for 46.0% of the Global Adjustment.
2.2.3 Cost Adjustment Term for Prescribed Generators
This section covers the second term of Equation 1:
CRPP = M + α [(A – B) + (C – D) + (E – F) + G] + H
The prescribed generators are comprised of the rate‐regulated nuclear and hydroelectric
facilities of Ontario Power Generation (OPG). The amounts paid for the prescribed generation
as set out in the EB‐2013‐0321 Payment Amounts Order dated December 18, 2014 is
$59.29/MWh for nuclear generation, $40.20/MWh for prescribed hydroelectric generation and
$41.93/MWh for the newly prescribed hydroelectric generation.
OPG filed an application (EB‐2014‐0370) for the clearance of certain deferral and variance
account balances. On September 10, 2015, the OEB approved payment amounts riders that were
made effective July 1, 2015 with an implementation date of October 1, 2015. The amounts
approved for the nuclear and hydroelectric generation facilities are $777.1 million and $155.6
million respectively and will be recovered until December 2016. The RPP forecast includes a
proportionate share of these costs being recovered through December 31, 2016. No charges
related to the EB‐2014‐0370 application are included in the RPP forecast from January through
October, 2017.
11 O. Reg. 429/04 defines two classes of consumers; Class A, comprised of consumers whose maximum hourly
demand for electricity in a month is 5 MW or more; and Class B consumers, comprised of all other consumers,
including RPP consumers. Subsequent to this, O. Reg. 126/14 redefined the demand threshold and allows certain
load facilities with an average monthly peak load of 3‐5 MW to become eligible to be a Class A customer on an opt‐in
basis, effective July, 2015.
12 The percentage of Class A Global Adjustment costs was based on Class A load during peak demand hours in the
May 1, 2015 to April 30, 2016 period. The Class A peak demand factor effective for the July 1, 2016 to June 30, 2017
period will be based on peak load percentages in the May 1, 2015 to April 30, 2016 period.
13 The Class A/Class B split did not exist before January 2011. Data on RPP consumption as a share of total Class B
consumption is available only for the January 2011 to September 2016 period.
Calculat ing the RPP Supply Cost 14
On May 27, 2016, OPG filed an application (EB‐2016‐0152) seeking approval for payment
amounts for its prescribed generation facilities commencing January 1, 2017 through to the end
2021. Consistent with past practice, the OEB has assessed whether it is prudent to take into
account some effect of the application in this RPP forecast. This approach is in keeping with
one of the objectives of the RPP, which is to smooth changes in prices over time. The OEB has
concluded that, given that the review of this application remains in the early stages, no
provisions for OPG’s application have been included in this forecast. Current payment amounts
are assumed to persist in real terms through to the end of the forecast period.
Quantity A was therefore forecast by multiplying payment amounts per MWh consistent with
the assumption described above, by the prescribed assets’ total forecast output per month in
MWh.
Quantity B was forecast by estimating the market values of each MWh of nuclear and
prescribed hydraulic generation, and multiplying those market values by the volume of nuclear
and prescribed hydraulic generation. The value of A is $4.0 billion, and the value of B is $1.7
billion.
2.2.4 Cost Adjustment Term for Non‐Utility Generators (NUGs) and Other Generation under
Contract with the OEFC
This section describes the calculation of the third term of Equation 1:
CRPP = M + α [(A – B) + (C – D) + (E – F) + G] + H
Although the details of these payments (amounts by recipient, volumes, etc.) are not public,
published information from the IESO about aggregate monthly payments to non‐utility
generators (NUGs) has been used as the basis for forecasting payments in future months. This
data has been supplemented by information provided by the OEFC. This forecast was used to
compute an estimate of the total payments to the NUGs under their contracts, or amount C in
Equation 1.
The amount that the NUGs would receive under the Market Rules, quantity D in Equation 1, is
their hourly production times the hourly Ontario energy price. These quantities were forecast
on a monthly basis, as an aggregate for the NUGs as a whole.
The value of “C” in Equation 1 (i.e., the contract cost of the NUGs) is estimated to be $0.6
billion, and the value of “D” (i.e., the market value of the NUG output) is estimated to be $0.1
billion.
2.2.5 Cost Adjustment Term for Certain Renewable Generation Under Contract with the IESO
This section describes the calculation of the fourth term of Equation 1:
CRPP = M + α [(A – B) + (C – D) + (E – F) + G] + H
Quantities E and F in the above formula refer to certain renewable generators paid by the IESO
under contracts related to output. Generators in this category are renewable generators under
the following contracts:
o Renewable Energy Supply (RES) Request for Proposals (RFP) Phases I, II and III;
o the Renewable Energy Standard Offer Program (RESOP);
o the Feed‐In Tariff (FIT) Program;
Calculat ing the RPP Supply Cost 15
o the Hydroelectric Energy Supply Agreements (HESA) directive, covering new and
redeveloped hydro facilities; and,
o the Hydro Contract Initiative (HCI), covering existing hydro plants.
Quantity E in Equation 1 is the forecast quantity of electricity supplied by these renewable
generators times the fixed price they are paid under their contract with the IESO. The
statistical model includes estimates of the fixed prices. In some cases, this is simply the
announced contract price (e.g., $420/MWh for solar generation under RESOP). In others, the
contract price needs to be adjusted in each year either partially or fully in proportion to
inflation. In still others, detailed information on contract prices is not available, and they have
been estimated based on publicly‐available information (for example, the Ontario Government
announced that the weighted average price for Renewable RFP I projects was $79.97/MWh, but
did not announce prices for individual contracts).14
The size and generation type of the successful renewable energy projects to date have been
announced by the Government and the IESO. The statistical model produced forecasts of
additional renewable capacity coming into service during the RPP period, and the monthly
output of both existing and new plants, using either historical values of actual outputs (where
available), or estimates based on the plants’ capacities and estimated capacity factors. The
statistical model also forecasts average market revenues for each plant or type of plant.
Quantity F in Equation 1 is therefore the forecast output of the renewable generation multiplied
by the forecast average market revenue (based on market prices in the Wholesale Market Price
Forecast Report) at the time that output is generated.
The value of “E” in Equation 1 (i.e., the contract cost of renewable generation) is estimated to be
$4.2 billion, and the value of “F” (i.e., the market value of renewable generation) is estimated to
be $0.1 billion.
2.2.6 Cost Adjustment Term for Other Contracts with the IESO
This section describes the calculation of the fifth term of Equation 1:
CRPP = M + α [(A – B) + (C – D) + (E – F) + G] + H
The costs for three types of resources under contract with the IESO are included in G:
1. conventional generation (e.g., natural gas) whose payment relates to the generator’s
capacity costs;
2. demand side management or demand response contracts; and
3. Bruce Power, which has an output‐based contract for generation from its Bruce A and
B nuclear facilities.
The contribution of conventional generation under contract to the IESO to quantity G relates to
several contracts:
14For information related to the FIT Price Schedule, see the IESO’s dedicated web page at:
http://fit.powerauthority.on.ca/program‐resources/price‐schedule
Calculat ing the RPP Supply Cost 16
o Clean Energy Supply (CES) contracts, which include conventional generation
contracts as well as one demand response contract awarded to Loblaws;15
o The “early mover” contracts;16
o Contracts awarded for projects classified as Combined Heat and Power (CHP)
projects17;.
The costs of these contracts, for the purpose of calculating the RPP supply cost, are based on an
estimate of the contingent support payments to be paid under the contract guidelines. The
contingent support payment is the difference between the net revenue requirement (NRR)
stipulated in the contracts and the “deemed” energy market revenues. The deemed energy
market revenues were estimated based on the deemed dispatch logic as stipulated in the
contract and the Wholesale Market Price Forecast Report that underpins this RPP price setting
activity. The NRRs and other contract parameters for each contract have been estimated based
on publicly available information. Examples include the average NRR for the CES contracts
which was announced by the Government to be $7,900 per megawatt‐month,18as well as an
NRR of $17,000 for the cancelled Oakville Generating station which has been used as a
guideline for some of the more recent gas plant additions.
The cost to the IESO of any additional CDM initiatives is also captured in term G of Equation 1.
Starting on January 1, 2015, and continuing until December 31, 2020, electricity distributors are
expected to continue to offer CDM programs to customers in their service area, consistent with
the Minister of Energy’s Directive issued to the OEB and the Letter of Direction to the OPA,
both dated March 31, 2014. Costs for these programs will be recovered and settled with the
IESO, by way of contracts with the LDCs, for the period 2015 to 2020.
In December 2015, the IESO negotiated an amended agreement with Bruce Power in relation to
the refurbishment and continued operation of the Bruce Power nuclear units19. The amended
contract stipulates that an initial price of $65.73/MWh would be paid for the output of Bruce A
and B. The amended contract also stipulates that the initial price will be indexed to inflation
15 Nine facilities holding CES contracts are operational during this RPP period: the GTAA Cogeneration Facility, the
Loblaws Demand Response Program, seven large gas‐fired plants (Portlands, Goreway, Greenfield, St. Clair, York
Energy Centre, Halton Hills and Green Electron Power), and two biomass projects (Atikokan and Thunder Bay).
The IESO entered into contracts with these facilities pursuant to directives from the Minister of Energy.
16 On December 14, 2005, the Minister of Energy directed the OPA to negotiate contracts with plants that had entered
service since 1998 without a contract. Five facilities signed early mover contracts with the OPA: the Brighton Beach
facility, TransAlta’s Sarnia facility, and three Toromont facilities. On December 24, 2008, the OPA was directed to
negotiate new contracts which are to expire no later than December 26, 2026. For forecasting purposes, it is assumed
that the contribution to the Global Adjustment of these contracts will be similar to what it would have been under the
old contracts.
17 Seven facilities holding CHP Phase I contracts are expected to be operational during this RPP period: the Great
Northern Tri‐gen Facility, the Durham College District Energy Project, the Countryside London Cogeneration
Facility, the Warden Energy Centre, the Algoma Energy Cogeneration Facility, the East Windsor Cogeneration
Centre, and the Thorold Cogeneration Project. Other facilities from other procurement processes are included as well.
18 Given the Ministerial directive to the OPA, the NRR for the “early movers” was assumed to be the same.
19In 2005, Bruce Power entered into an initial Bruce Power Refurbishment Implementation Agreement (BPRIA) in
relation to the operation of Bruce Units 1 and 2. In December 2015, the IESO and Bruce Power entered into an
Amended and Restated Bruce Power Refurbishment Implementation Agreement (AR‐BPRIA).
Calculat ing the RPP Supply Cost 17
every April 1. For the upcoming RPP period, these revised contract terms have been applied for
the output of Bruce A and B.
The IESO has a contract with OPG for the on‐going operation of OPG’s Lennox Generating
Station, a 2,140‐MW peaking plant. The cost of this contract is included in the “G” variable.
The value of “G” in Equation 1 (i.e., net cost of Bruce nuclear, gas and Lennox generation plus
CDM programs) is estimated to be $3.9 billion.
2.2.7 Estimate of the Global Adjustment
The total Global Adjustment is estimated to be a cost of $10.8 billion. The RPP share of this (i.e.,
α times the total cost) is estimated to be a cost of $5.0 billion, or $84.50/MWh (8.450 cents per
kWh). This is the forecast of the average Global Adjustment cost per unit that will accrue to
RPP consumers over the period from November 1, 2016 to October 31, 2017.
The Global Adjustment represents the difference between the total contract cost of the various
contracts it covers (for the prescribed generating assets, Bruce nuclear, gas plants, renewable
generation, CDM, etc.) and the market value of contracted generation. The Global Adjustment
therefore changes for two reasons:
o changes (usually increases) in the number and aggregate capacity of contracts it
covers, or
o fluctuations in the market revenues earned by contracted and prescribed generation.
This is illustrated in Figure 2, which shows how the Global Adjustment is expected to change
over the next 18 months. Consumers pay the full cost of the contracts covered by the Global
Adjustment, either through market costs or through the Global Adjustment itself. The Global
Adjustment fluctuates as market prices rise and fall, but the total supply cost (market cost plus
Global Adjustment) is expected to slightly decrease over the next 12 months.
Figure 2: Components of the RPP Supply Cost
Overall, supply costs have remained essentially stable between this RPP period and the
previous one. Underlying costs have decreased due to the expiry of temporary one‐time costs
for prescribed assets at the end of 2016. However, that decrease is largely offset by an increase
Calculat ing the RPP Supply Cost 18
in costs related primarily to new renewable sources of generation. Similarly, higher wholesale
market prices result in only a slight increase in supply cost because they are largely offset by a
decrease in the Global Adjustment.
2.2.8 Cost Adjustment Term for IESO Variance Account
This section describes the calculation of the sixth term of Equation 1:
CRPP = M + α [(A – B) + (C – D) + (E – F) + G] + H
The cost adjustment term for the IESO variance account consists of two factors. The first is the
forecast interest costs associated with carrying any RPP‐related variances incurred during the
upcoming RPP period (November 2016 – October 2017). The second represents the price
adjustment required to clear (i.e., recover or disburse) the existing RPP variance and interest
accumulated over the previous RPP period.
The first term discussed above is small, as any interest expenses incurred by the IESO to carry
consumer debit variances in some months are generally offset by interest income the IESO
receives from carrying consumer credit balances in other months. In addition, the interest rate
paid by the IESO on the variance account is relatively low.
The second term is significant. It represents the price adjustment necessary to clear the total net
variance accumulated since the RPP was introduced on April 1, 2005 through to the beginning
of this RPP Period. As of October 31, 2016 the net variance account balance is forecast to be a
negative balance (i.e. a deficit) of approximately $82 million including interest. This is quantity
“H” in Equation 1.
A variance clearance factor has been calculated that is estimated to bring the variance account to
approximately a zero balance over the twelve month period, after taking into account both the
changes in total RPP consumption and the Final RPP Variance Settlement Amount payments
expected as of October 31, 2016. This variance clearance factor has increased from a debit of
0.097 cents per kWh in the previous RPP report to a debit of 0.226 cents per kWh, based on costs
and market activity from April 2016 through to September 2016. The values also reflect an
adjustment to reflect a revision to certain non‐utility generation costs. Offsetting this increase
somewhat is a variance account balance that is currently higher than previously forecast. This
difference is due to a warmer summer that resulted in higher market prices than forecast and
generated more revenue than forecast due to higher system demand. At the same time, system
costs, many of which are fixed, were recovered over more consumption. As a result, the debit
that had accumulated in the variance account was drawn down faster than expected. The
variance clearance factor increases the average RPP supply cost by the amount of the debit:
$2.26/MWh (0.226 cents per kWh).
2.3 Correcting for the Bias Towards Unfavorable Variances
The supply costs discussed in section 2.2 are based on a forecast of the HOEP. However, actual
prices and actual demand cannot be predicted with absolute certainty. Calculating the total
RPP supply cost therefore needs to take into account the fact that volatility exists amongst the
forecast parameters, and that there is a slightly greater likelihood of negative or unfavourable
variances than favourable variances. For example, because nuclear generation plants tend to
operate at capacity factors between 80% and 90%, these facilities are more likely to supply less
energy than forecast (due to unscheduled outages) than to supply more than forecast (i.e., there
Calculat ing the RPP Supply Cost 19
is 10‐20% upside versus 80‐90% downside on the generator output). Similarly, during
unexpectedly cold or hot weather, prices tend to be higher than expected as does RPP
consumers’ demand for electricity. The net result is that the RPP would be ʺexpectedʺ to end
the year with a small unfavourable variance in the absence of a minor adjustment to reflect the
greater likelihood of unfavourable variances.
The OEB regularly reviews the differences between the estimated and actual RPP supply cost.
Based on this experience, the Adjustment to Address Bias Towards Unfavourable Variance is
set at $1.00/MWh (0.100 cents per kWh). This amount is included in the price paid by RPP
consumers to ensure that the “expected” variance at the end of the RPP year is zero.
2.4 Total RPP Supply Cost
Table 2 shows the percentage of Ontario’s total electricity supply attributable to various
generation sources, the percentage of forecasted Global Adjustment costs for each type of
generation and the total unit costs. Total unit costs are based on contracted costs for each
generation type, including global adjustment payments and market price payments, where
applicable.
Table 2: Total Electricity Supply and Cost
NB: Hydro excludes NUGs and OPG non‐prescribed generation. Gas includes Lennox, NUGs and OPG bioenergy
facilities. Percentage (%) of Total GA excludes CDM costs.
The total RPP supply cost is estimated to be $6.5 billion.20
The following table itemizes the various steps discussed above to arrive at the average RPP
supply cost of $112.39/MWh. This average supply cost corresponds to an average RPP price,
which is referred to as RPA, of 11.24 cents per kWh.
20 The total cost figure is net of the forecast variance account balance as of October 31, 2016.
% of Total % of Total Total Unit CostSupply GA (Cents/kWh)
Nuclear 59% 38% 6.6Hydro 23% 12% 5.8Gas 7% 17% 17.3Wind 8% 18% 14.0Solar 2% 15% 48.0Bio Energy 0% 0% 13.1
Calculat ing the RPP Supply Cost 20
Table 3: Average RPP Supply Cost Summary
Source: Navigant
RPP prices currently being paid by RPP customers are set to recover an RPA of 11.14 cents per
kWh. These prices reflected a total RPP cost pool of $6.5 billion and RPP consumption of 58
TWh. Each of these parameters is virtually equal to the forecast prepared in this report. Given
the results of this forecast, it is expected that the RPP prices previously set in April 2016 will
continue to be effective in recovering the cost of electricity supply for RPP customers over the
forecast period.
RPP Supply Cost Summaryfor the period from November 1, 2016 through October 31, 2017
Forecast Wholesale Electricity Price $22.59Load-Weighted Price for RPP Consumers ($ / MWh) $24.63
Impact of the Global Adjustment ($ / MWh) + $84.50Adjustment to Address Bias Towards Unfavourable Variance ($ / MWh) + $1.00Adjustment to Clear Existing Variance ($ / MWh) + $2.26
Average Supply Cost for RPP Consumers ($ / MWh) = $112.39
Calculat ing the RPP Price 21
3. CalculatingtheRPPPriceThe previous chapter calculated a forecast of the total RPP supply cost. Given the forecast of
total RPP demand, it also produced a computation of the average RPP supply cost and the
average RPP supply price, RPA. This chapter explains how prices are determined for
consumers with eligible time‐of‐use meters that are being charged the TOU prices, RPEMON,
RPEMMID, and RPEMOFF, and for the tiers, RPCMT1 and RPCMT2..
3.1 Setting the TOU Prices for Consumers with Eligible Time‐of‐Use Meters
For those consumers with eligible time‐of‐use meters, three separate prices apply. The times
when these prices apply varies by time of day and season, as set out in the RPP Manual. There
are three price levels: On‐peak (RPEMON), Mid‐peak (RPEMMID), and Off‐peak (RPEMOFF). The
load‐weighted average price must be equal to the RPA.
As described in the RPP Manual, the three prices are calculated to recover the full costs of
supply, given the load shape of TOU customers. The RPP Manual does not prescribe the order
in which prices are determined.
The first step in deriving the TOU prices for this forecast period was to set the Off‐peak price, or
RPEMOFF. This price reflects the forecast market price during that period, including the Global
Adjustment and the variance clearance factor. The Mid‐peak price, RPEMMID, was similarly set.
After these two prices were set, and given the forecast levels of consumption during each of the
three periods, the On‐peak price, RPEMON, is determined by the requirement for the load‐
weighted average of TOU prices to equal the RPA.
The various components of Global Adjustment costs are allocated to TOU consumption periods
based on the type of cost. The costs associated with OPG’s regulated facilities, Bruce Power’s
nuclear plants, most renewable generation and CDM costs related to conservation programs are
allocated uniformly across all consumption. The remaining portion of the CDM cost is allocated
only to On‐peak consumption, because the purpose of the demand management portion of
CDM is to ensure uninterrupted supply during peak times. Payments to Lennox are also
allocated to the on‐peak period, for the same reason. Payments to natural gas generators have
been allocated into the mid‐peak and on‐peak periods. Though the gas generators operate in all
three periods, costs for generation in off‐peak times have been allocated to the on‐peak period,
reflecting the system purpose for which many of the facilities were initially contracted: ensuring
reliability of supply and being a dispatchable source of power at times of higher demand. The
NUG component of the GA is allocated to both Mid‐peak and On‐peak consumption because
these generators serve non‐Off‐peak consumption. As well, approximately one‐quarter of the
stochastic adjustment was allocated to the Mid‐peak price and three‐quarters was allocated to
the On‐peak price because the majority of risks covered by the adjustment are borne during
these time periods.
The overall effect of this allocation is to increase the differential between the on‐peak and off‐
peak prices to 2.1:1. This ratio, which is higher than in many RPP settings prior to May 2015,
strengthens the incentive for electricity consumers to shift their consumption away from on‐
peak periods, when their electricity prices are highest. Not only is the on‐peak price higher
under this scenario, but the off‐peak price is also lower than it would have been absent this
increase to the ratio. A customer with a consumption pattern that mirrors the total TOU
Calculat ing the RPP Price 22
consumption would experience no overall bill impact from this change to the ratio, since each of
the TOU prices are set so that they collectively recover the same average cost.
The OEB has a number of objectives in setting the RPP. These include setting prices to recover
the full cost of RPP supply on a forecast basis, as well as ensuring that prices are fair, stable and
predictable.
The review of costs has shown the average RPP cost for the next 12 months to be within 1% of
the last 12 month forecast. Variances over the last six months, from March 2016 to August 2016,
have tracked within an average of $6 million relative to the expected values.
The time of use prices that result from the current forecast are 8.8 cents per kWh off‐peak; 13.3
cents for mid peak and 18.3 cents for on‐peak. TOU prices calculated from this average cost are
only marginally (0.1‐0.3) cents higher than current TOU prices; the difference in revenues
collected over the next six months is negligible in the context of the RPP cost overall, which is
forecast to be about $6.5 billion annually. The difference is also smaller than the typical
unexpected variance that can arise from weather variation, fluctuation in natural gas prices, and
other cost inputs.
The OEB has determined that the TOU prices will not change from the previous period because
they will continue to be effective in recovering forecast costs. The determination to retain
current prices supports the OEB’s objectives of providing fair, stable and predictable
commodity prices for consumers. The time‐of‐use prices therefore remain as follows:
o RPEMOFF = 8.7 cents per kWh
o RPEMMID = 13.2 cents per kWh, and
o RPEMON = 18.0 cents per kWh.
As defined in the RPP Manual, the time periods for time‐of‐use (TOU) price application are
defined as follows:
o Off‐peak period (priced at RPEMOFF):
Winter and summer weekdays: 7 p.m. to midnight and midnight to 7 a.m.
Winter and summer weekends and holidays:21 24 hours (all day)
o Mid‐peak period (priced at RPEMMID)
Winter weekdays (November 1 to April 30): 11 a.m. to 5 p.m.
Summer weekdays (May 1 to October 31): 7 a.m. to 11 a.m. and 5 p.m. to 7 p.m.
o On‐peak period (priced at RPEMON)
Winter weekdays: 7 a.m. to 11 a.m. and 5 p.m. to 7p.m.
Summer weekdays: 11 a.m. to 5 p.m.
21 For the purpose of RPP time‐of‐use pricing, a “holiday” means the following days: New Year’s Day, Family Day,
Good Friday, Christmas Day, Boxing Day, Victoria Day, Canada Day, Labour Day, Thanksgiving Day, and the Civic
Holiday. When any holiday falls on a weekend (Saturday or Sunday), the next weekday following (that is not also a
holiday) is to be treated as the holiday for RPP time‐of‐use pricing purposes.
Calculat ing the RPP Price 23
The above times are given in local time (i.e., the times given reflect daylight savings time in the
summer).
The average price for a consumer on time‐of‐use prices depends on the consumer’s load profile
(i.e., how much electricity is used at what time). The load profile assumed for TOU consumers
is different from the load profile for non‐TOU RPP consumers. RPP prices are set so that a TOU
consumer with an average TOU load profile will pay the same average price as an RPP
consumer that pays the tiered prices with a typical (non‐TOU) load profile. This average price
is equal to the RPA.
3.2 Setting the Tiered Prices
The final step in setting the price for RPP consumers with conventional meters is to determine
the tiered prices. For these consumers, there is a two‐tiered pricing structure: RPCMT1 (the price
for consumption at or below the tier threshold) and RPCMT2 (the price for consumption above
the tier threshold). The tier threshold is an amount of consumption per month.
The tiered prices are calculated so that the average per unit revenue generated is equal to the
RPA. This is achieved by maintaining the ratio between the original upper and lower tier prices
(i.e., the ratio between 4.7 and 5.5 cents per kWh) and forecasting consumption above and
below the threshold in each month of the RPP.
RPP tiered prices are set such that the weighted average price will come as close as possible to
the RPA, based on the forecast ratio of Tier 1 to Tier 2 consumption, and maintaining a 15‐17%
difference between Tier 1 and Tier 2 prices.
Tiered prices calculated from the forecast RPP average cost in this report are each 0.1 cents
higher than current prices paid by RPP customers. The OEB has determined that the tiered
prices will not change from the previous period because they will continue to be effective in
recovering forecast costs. The determination to retain current prices supports the OEB’s
objectives of providing fair, stable and predictable commodity prices for consumers. The tiered
prices therefore remain as follows:
o RPCMT1 = 10.3 cents per kWh; and,
o RPCMT2 = 12.1 cents per kWh.
Table 4: Price Paid by Average RPP Consumer under Tiered and TOU RPP prices
Time‐of‐Use RPP Prices Off‐Peak Mid‐Peak On‐Peak Average Price
Price 8.7¢ 13.2¢ 18.0¢ 11.1¢
% of TOU Consumption 65% 17% 18%
Tiered RPP Prices Tier 1 Tier 2 Average Price
Price 10.3¢ 12.1¢ 11.1¢
% of Tiered Consumption 53% 47%
Expected Variance 24
4. ExpectedVarianceAfter RPP prices are set, the monthly expected variance can be calculated directly. The variance
clearance factor is set so that the expected variance balance at the end of the RPP period will be
as close as possible to zero. However, the variance balance is not expected to decline smoothly;
the amount of the variance balance cleared is expected to vary significantly from month to
month for several reasons:
o Variance clearance will tend to be higher in months when RPP volumes are higher
(i.e., summer and winter) and lower when volumes are lower (i.e., spring and fall).
o While there is only technically a single average RPP price (or RPA) in this report, the
residential tier thresholds are higher in winter (1000 kWh) than in summer (600 kWh).
This means that the average price that RPP consumers on tier prices pay will be lower
in winter than in summer, because they will have less consumption at the higher
tiered price in the winter. Thus, variance clearance will vary from summer to winter.
o The HOEP is projected to be higher in some months (especially summer) and lower in
others (especially the shoulder seasons), but RPP prices remain constant. This will be
partially offset by changes in the Global Adjustment. Thus, variance clearance will
vary by month, depending on market prices.
Because the RPP prices are rounded to the nearest tenth of a cent, the amount of revenue to be
collected cannot be adjusted to exactly clear the variance account. In this case, the RPP prices
resulting from the forecast RPA in this report would be expected to collect slightly more than
the RPP supply cost, leaving an “expected” credit of $29 million in the variance account at the
end of the RPP period, i.e. on October 31, 2017.
The OEB has determined that the RPP prices established in April 2016 will remain effective as of
November 1, 2016. Given the updated cost forecast presented in this report, it is expected that
the continuation of current prices will result in a debit of approximately $11M at the end of
April 30, 2017, at which time new prices will take effect. (On a 12‐month basis a debit of $66M
is forecast for the end of the RPP forecast period). These residual balances are well within the
range of typical variances that have been observed in the variance account over the last two
years. Combined with the forecast variance account balance, current RPP prices therefore
remain capable of effectively recovering the expected costs of electricity supply. The entire
forecast and RPP prices will be reviewed in the spring, consistent with the OEB’s regular
schedule.
The combined effect of these factors is shown in Figure 3. The values in each month of Figure 3
represent the total expected balance in the variance account at the end of each month. The
values also reflect an adjustment to reflect a revision to certain non‐utility generation costs.
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